Elbit Systems shows big quarterly earnings

HAIFA, Israel, Aug. 16 (UPI) -- Israeli defense company Elbit Systems Ltd. this week reported record results for the second quarter of 2007.

"Backlog of orders as of June 30, 2007, reached a record $4.1 billion, compared with (nearly) $3.8 billion as of December 31, 2006," the company statement said. Of these orders, 73 percent were sales from outside Israel. The company said that "61 percent of the backlog is scheduled to be performed by the end of 2008. The majority of the balance is scheduled to be performed in 2009 and 2010."

Revenues also increased over the same period last year: "Consolidated revenues for the second quarter of 2007 increased by 36 percent to (approximately) $4.7 billion from $344.8 million in the second quarter of 2006."

The firm's biggest source of revenue -- 34.4 percent of the total -- came from airborne systems, Elbit Chief Financial Officer Yossi Gaspar told investors, analysts and reporters in a conference call on Tuesday.

Reported gross profit also jumped 30 percent over the second quarter of 2006 to $1.17 billion, the company said.

Gaspar and Elbit's president and chief executive officer, Joseph Ackerman, noted that a significant portion of the revenue jump can be attributed to the acquisition of an Israeli communications company, Tadiran. However, even discounting the acquisition, Elbit posted strong growth for the three-month period.

"We are solidifying our presence as a global company (with the) United States and Europe (as) key markets," Ackerman said during the conference call. Elbit has recently received orders from the U.S. Marine Corps and the British armed forces and has a number of subsidiaries in the United Kingdom.

The company finalized another key contract, valued at $50 million, in May with the Canadian and Italian armed forces. Elbit will provide these armies with handheld thermal imaging devices, Ackerman said.

He added that the company is working to "expand our product and solution offering through research and development."

"I am highly confident for the future," Ackerman said.

Although a country's total defense spending remains largely unchanged from year to year, one analyst said, a change in priorities could be spurring Elbit's growth.

"Shifts in the nature of the threat tend to redistribute defense spending," Bernard Finel, a senior fellow at the American Security Project, explained to UPI in an e-mail message. The American Security Project is a non-profit national security and foreign policy think tank.

Finel said that "C4ISR" companies -- that is, companies that deal in command, control, communications, computers, intelligence, surveillance and reconnaissance -- are addressing this changing threat.

"In the United States, our shipbuilding programs are in disarray in part because we are currently stuck in two land wars, and are finding a diminished utility for our naval power. Elbit, I presume, is benefiting from this dynamic. As a C4ISR firm, they are located in a rapidly growing segment of the international defense market.

"Fears over terrorism, ungoverned spaces, border security, and so on will increase demand for sensors and sensor integration solutions.

"I suspect we’ll see increased growth and development in this segment of the market, probably with greater integration with civilian-oriented firms working on supply chain management," Finel predicted.

And while the U.S. and European markets are growing now, "It is not clear to me that even a 20 percent increase in defense spending would be sufficient to meet all our outstanding obligations," Finel said.

The fastest-growing markets will be in East Asia -- China and Japan in particular -- according to Finel. "But (those countries) are starting from very different, relatively low levels of defense expenditures. ... I expect this will be a promising area for international defense firms."

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